With the petroleum price stuck in a tight range lately, energy-sector companies like Marathon Oil (NYSE:MRO) have had a chance to breathe, and so has MRO stock. Yet, the opportunity to relax may be short-lived as a major earnings event is about to take place.
Marathon’s second-quarter earnings data will be released on Wednesday, Aug. 5. Not too many traders expect Marathon to have had a blockbuster quarter. The oil price rout, in combination with the onset of the novel coronavirus, put a damper on any hopes of massive profits during that time.
But there is more to a strong quarter than making money. There’s also the other side of the balance-sheet equation, which is reducing capital expenditures. Cutting costs, along with getting oil out of the ground cheaply, are specialties of Marathon.
With rock-bottom expectations and lagging oil prices, can Marathon deliver an earnings surprise? Let’s drill down and see if we can dredge up some data on this struggling oil giant.
A Closer Look at MRO Stock
Upon examining the facts surrounding MRO stock, the first thing that should stand out to value-focused investors is the trailing price-earnings ratio of 17.3 times. That is quite reasonable, and it suggests that MRO shares may be a bargain at current prices.
As far as the price action is concerned, we can observe that MRO stock has generally followed the broader energy sector in 2020 so far. That being said, it can also be argued that MRO shareholders were punished excessively.
In defense of this contention, consider that Marathon’s 52-week high is $14.39 while its 52-week low is a mind-melting $3.02. As turbulent as 2020 has been thus far, there was no need for the market to put that much pressure on the MRO share price.
History has proven this thesis to be true, at least to a certain extent, as MRO stock was back up to nearly $5.50 by the end of July. Now with an earnings announcement approaching, the trading community will be watching closely to see if the next price move is a heartening leg up or a morale-crushing leg down.
Analysts Are Not Expecting Much
Looking back, there’s not much encouragement to be derived from Marathon’s first quarter. During that time, the company recorded an adjusted net loss of 16 cents per share. That’s worse than the consensus estimate for a per-share loss of 13 cents.
Moreover, it’s a deep fall from the comparable quarter of the prior year. In that quarter, Marathon posted an earnings gain of 31 cents per share.
It has been said that the market is forward-looking. But in some instances, it also looks back. Given the company’s dismal performance during the first quarter, experts aren’t envisioning a strong second quarter for Marathon.
Thus, the consensus estimate calls for a quarterly earnings loss of 61 cents per share. Additionally, analysts expect just $622.9 million in revenues. That is substantially lower than the $1.2 billion Marathon reported for the first quarter.
When Cheaper Is Better
Could pessimism drive a second-quarter earnings surprise to the upside? That’s certainly possible, and Marathon’s cost-cutting measures could also position MRO stockholders for unexpected gains.
Consider that in March, Marathon reduced its capital investments for 2020 by at least $500 million. Then in April, the company revealed its plans to cut another $600 million worth of capital investments compared to the estimates provided in March.
Further consolidating Marathon’s reputation as the “king of cheap” is the company’s ability to get oil out of the ground at a very low cost. InvestorPlace Markets Analyst Thomas Yeung provides the data to support a position that Marathon might be America’s thriftiest oil producer:
“Each barrel of oil costs the company just $5 to extract. Not many competitors can match that. And once you include depreciation and exploration costs, the company estimates 2020’s all-in costs at just $28.38 per barrel.”
The Bottom Line on MRO Stock
MRO shareholders have dealt with some serious price pressure this year. The upcoming earnings report could add to that pressure, no doubt. Still, Marathon’s thrifty proclivities could lead to a surprisingly good second quarter — or at least a better-than-expected second quarter. In my opinion, that is good enough for now.
David Moadel has provided compelling content — and crossed the occasional line — on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.